Ask
an expert about saving for your child's post-secondary education
Author:
News Canada
(NC)—With
the ever-increasing costs of post-secondary education parents are realizing
the importance of starting to save for their child's future. Since it is
estimated that in 18 years a four-year post-secondary education will cost
$94,000*. Judy Thomson, Director, BMO Mutual Funds answers parents' common
questions about Registered Education Savings Plans (RESPs):
What
is the best way to save for my children's education?
My
advice is to start early and to set up a Registered Education Savings Plan
(RESP) for your children. Your RESP contributions are not tax-deductible,
but the income earned in the RESP compounds on a tax-deferred basis. There
are other options, such as a regular savings account and non-registered investments
however, only an RESP lets you take advantage of the Canada Education Savings
Grant (CESG) Program. Through this program the Federal Government will contribute
an additional 20 per cent of your annual RESP contributions, up to a maximum
of $400 per calendar year and a lifetime limit of $7,200 for each qualified
child under age 17. In order for children aged 16 and 17 to qualify for the
CESG they must meet certain conditions.
What
happens if I take money out of an RESP?
You
may withdraw your RESP contributions at any time, with no tax consequences
- only the income accumulated in the plan is taxable. When money is eventually
withdrawn from an RESP to pay for post-secondary education costs, the income
is taxed in the hands of the beneficiary (the student), not the contributor.
RESP withdrawals that are not used to fund post-secondary education costs
may trigger "grant repayment". A financial planner at your local
bank branch can help you address this, should your child decide not to pursue
a post-secondary education.
What
happens if my child does not attend post-secondary school?
Subject
to certain conditions, if your child does not pursue post-secondary education,
up to $50,000 of the RESP income may be transferred to the subscriber's RRSP,
as long as there is available contribution room. If there is more RESP income
than RRSP contribution room, the excess income may be added to the taxable
income of the contributor. In addition to the tax that would normally be
paid, a 20 per cent penalty tax would also be charged. The subscriber can
also elect to donate the income to a university.
If
you have further questions about saving for your child's education, visit
your nearest BMO Bank of Montreal branch and speak with a financial planner.
*Education
costs include tuition, a single residence room with meals and books. Projections
are provided by BMO Bank of Montreal Economics Department in conjunction
with the Association of Universities and Colleges of Canada and Statistics
Canada.
Information
provided by BMO Mutual Funds. For more information visit your nearest BMO
Bank of Montreal branch, call 1-800-665-7700 or 1-888-636-6376 in Quebec
or visit www.bmo.com/ mutualfunds.
-
News Canada
